Southport Minerals
Case 11: Southport Minerals, Inc.
1. What did Southport Minerals confront in 1964? Did the Firstburg investment opportunity fit well with Southport’s needs in 1970?
Southport confronted a period of tightening supplies and rising sulfur prices which lead to a sharp increase in profitability for the company. Profit after tax had jumped from $12.8 million in 1963 to $15.3 million in 1964 increasing its EPS to 1.00 a share while still maintaining a dividend of .60 a share while actually lowering its dividend payout ratio. Southport was also highly liquid during this time, having $54 million in cash on hand and liquid securities and no debt in its capital structure.
Being in a highly liquid position Southport sought diversification to lessen its dependence on Sulfur which had accounted for 90% of sales in the mid 1960’s. Southport was looking for a sizable investment for its cash position that was attractive. After investigating Firstburg they found that the mountain contained 33 million tons of ore with an average copper content of 2.5%, which in geographical terms is relatively high content for ore. Copper prices have been increasing from 29.3 cents a pound in 1963 all the way to as high as 69.1 cents a pound in 1966 as rising world consumption outweighed ore production. This opportunity presented a perfect opportunity for Southport to diversify into copper ore mining and seek a positive return on its highly liquid cash position. The political climate in Indonesia had settle down by 1967 and suggested a safer outlook against expropriation.
2. Describe the financing plan that Southport was negotiating (answer the question in detail according to the info provided by the case).
The first step Southport took was to form a new subsidiary called Southport Indonesia Inc. This means that SI is a separate entity than Southport, and they would not be responsible for its debt obligations.
SI began to contract the output of the mine to Japanese and German
1. What did Southport Minerals confront in 1964? Did the Firstburg investment opportunity fit well with Southport’s needs in 1970?
Southport confronted a period of tightening supplies and rising sulfur prices which lead to a sharp increase in profitability for the company. Profit after tax had jumped from $12.8 million in 1963 to $15.3 million in 1964 increasing its EPS to 1.00 a share while still maintaining a dividend of .60 a share while actually lowering its dividend payout ratio. Southport was also highly liquid during this time, having $54 million in cash on hand and liquid securities and no debt in its capital structure.
Being in a highly liquid position Southport sought diversification to lessen its dependence on Sulfur which had accounted for 90% of sales in the mid 1960’s. Southport was looking for a sizable investment for its cash position that was attractive. After investigating Firstburg they found that the mountain contained 33 million tons of ore with an average copper content of 2.5%, which in geographical terms is relatively high content for ore. Copper prices have been increasing from 29.3 cents a pound in 1963 all the way to as high as 69.1 cents a pound in 1966 as rising world consumption outweighed ore production. This opportunity presented a perfect opportunity for Southport to diversify into copper ore mining and seek a positive return on its highly liquid cash position. The political climate in Indonesia had settle down by 1967 and suggested a safer outlook against expropriation.
2. Describe the financing plan that Southport was negotiating (answer the question in detail according to the info provided by the case).
The first step Southport took was to form a new subsidiary called Southport Indonesia Inc. This means that SI is a separate entity than Southport, and they would not be responsible for its debt obligations.
SI began to contract the output of the mine to Japanese and German